From:  Andy
Date:  Fri, 22 Dec 2006

I want to take advantage of the new rules allowing conversion of a regular IRA to a Roth without an income limitation after 2009. I want to make non-deductible IRA contributions and roll those accounts to a Roth account in 2010. I also have a traditional IRA rollover account from a previous pension plan. I thought I read an article that the rollover account will be taxed even if I just transfer the non-deductible IRA accounts. Is that right?

Answer

Date:  Fri, 29 Dec 2006

Hello Andy,

Yes. The change allowing these conversions was adopted in the Tax Increase Prevention and Reconciliation Act. For many purposes, your IRAs are combined, and this is one of them.

I believe you can avoid this result by transferring the rollover IRA to another employer plan before making the conversion of your nondeductible IRA accounts.

There is quite a bit of time before this provision becomes effective. Be sure to keep the rollover account separate, and watch for further developments and announcements on this topic.

If the rollover account is a big one, consider applying for a ruling from the IRS on this issue.

Good luck!
Mike Gray

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